Natural gas futures surge after inventories fall near 2-year low

Natural gas futures jumped to a three-month high in New York after a government report showed that U.S. stockpiles last week fell to the lowest level in almost two years.

Gas surged as much as 3.5% after an Energy Information Administration said inventories fell 145 billion cubic feet last week to 1.938 trillion, the least since May 13, 2011. Analyst estimates compiled by Bloomberg showed an expected decline of 137 billion.

“The inventory withdrawal was surprisingly high,” said Gordy Elliott, a risk-management specialist at INTL FCStone Inc. in St. Louis Park, Minnesota. “We’re seeing a strong continuation of heating demand. If we can get past $3.85, we can rally to the $4 level.”

Natural gas for April delivery climbed 10.9 cents, or 3%, to $3.789 per million British thermal units at 1:37 p.m. on the New York Mercantile Exchange after rising to $3.81, the highest intraday price since Nov. 29. Volume was more than double the 100-day average for the time of day. Gas has climbed 13% this year.

The discount of April contracts to October, a gauge of summer demand for gas, narrowed 2.2 cents to 14.8 cents, the smallest gap since Nov. 23. The discount over the past month has been at its smallest compared with any April-October spread for the same period going back to 2004. The discount of October to January contracts narrowed 2.6 cents to 31.1 cents.

Options Volatility

April $4 calls were the most active gas options in electronic trading. They rose 1.1 cent to 2.1 cents per million Btu on volume of 975 contracts as of 1:57 p.m. Calls accounted for 63% of options volume.

Implied volatility for at-the-money gas options expiring in April was 32.53%, down from 33.87% yesterday. May options volatility was 30.82%, down from 30.91%.

The stockpile decrease was almost twice the five-year average decline for the week of 74 billion cubic feet, department data show. A surplus to the five-year average fell to 11.4% from 14.8% the previous week. Supplies were 18.5% below year-earlier inventories, compared with 14.8% last week.

This week’s storage withdrawal signals “some further tightening of the supply/demand balance relative to the recent baseline,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York, in a note to clients. “Combined with the forecast for ongoing colder than normal temperatures, this ratchets up the pressure for prices to move higher in the near term.”